Japan to Issue 11.5 Trillion Yen in New Bonds to Fund Fiscal Stimulus

Japan’s government plans to issue at least 11.5 trillion yen ($73.5 billion) in new bonds to finance a 21.3 trillion yen fiscal stimulus package aimed at addressing rising living costs and encouraging investment in key sectors . The supplementary budget, expected to be approved by the cabinet this week, marks the largest economic stimulus since the easing of pandemic-era restrictions. This move reflects a strategic shift to balance aggressive spending with fiscal discipline under Prime Minister Asano Takumi’s administration .

The decision follows a record tax revenue of 80.7 trillion yen for the fiscal year ending March 2026, a 3.7% increase over initial estimates. Despite this, the government faces a persistent funding gap, as the 2.9 trillion yen surplus cannot offset the 17.7 trillion yen required for the stimulus package . The reliance on debt financing contrasts with the previous administration under Ishiba Shigeru, which issued 6.7 trillion yen in bonds for a 13.9 trillion yen stimulus in the prior fiscal year. The current plan represents a 71% increase in bond issuance relative to the previous year’s supplementary budget .

Market reactions to the announcement have been mixed. Investors remain wary of Japan’s long-term fiscal health, as public debt exceeds twice the country’s GDP. This has fueled selling pressure on the yen and Japanese government bonds (JGBs), pushing long-term bond yields to a 25-year high earlier this month. The yen’s weakness, combined with elevated bond yields, signals market pricing of heightened supply risks and fiscal uncertainty .

The government’s strategy to reassure markets includes capping total bond issuance this fiscal year at 42.1 trillion yen, below the 2024-2025 level. This aligns with Prime Minister Asano’s “responsible and proactive public finance” policy, emphasizing “prudent spending” while advancing stimulus measures.

However, analysts note that the 11.5 trillion yen in new debt still represents a significant portion of the projected 42.1 trillion yen issuance target .

The stimulus package focuses on mitigating inflationary pressures and bolstering critical industries. Rising energy costs and global supply chain disruptions have exacerbated Japan’s cost-of-living crisis, prompting the government to allocate funds for wage support, energy subsidies, and infrastructure upgrades. The emphasis on industrial investment mirrors broader G7 trends of reshoring and strategic sectoral development .

Japan’s fiscal trajectory raises broader implications for global markets. As the world’s third-largest economy, its debt management decisions influence international capital flows and investor sentiment toward risk assets. The Bank of Japan’s accommodative monetary policy, combined with the government’s aggressive borrowing, could exacerbate currency volatility and pressure other central banks to recalibrate policies .

The challenge for the Asano administration lies in maintaining credibility on fiscal restraint while addressing immediate economic vulnerabilities. The success of the stimulus hinges on whether the 11.5 trillion yen in new debt can catalyze growth without triggering a loss of confidence in Japan’s fiscal framework. For now, markets remain skeptical, with long-term bond yields and the yen’s trajectory underscoring the delicate balance between stimulus and sustainability .